PotlatchDeltic Corporation (PCH) Earnings Call Transcript & Summary

Thank you, Michele. I now declare that each of the director nominees proposed for election has been elected and that proposals 2 and 3 have been approved. I now declare the business part of the meeting concluded at 9:06 am. Thank you for attending the meeting. Now we'll move to the more informal part of the business discussion. Mr. Cremers will give a brief presentation followed by a Q&A period. But before he starts, I would just like to remind everyone that some of the statements made at this meeting may be considered forward-looking. The company cautions investors that results of future operations may differ from those anticipated. We urge you to review the cautionary statements and other information contained in the company's filings with the SEC, including our annual report on Form 10-K and our most recent quarterly report on Form 10-Q, which identifies certain factors that could cause actual results to differ materially from those projected in any forward-looking statements made during this meeting. Copies of those reports and other filings are available through the company or online. I'll now turn the presentation over to Eric.

Yes. Thanks, Mike, and good morning, everyone. I'm Eric Cremers. I'm the President and CEO of PotlatchDeltic. Thank you for joining us for our virtual shareholder meeting this year. I've got a brief presentation to cover, and then we'll open it up to Q&A. Let's start on Page 3, which highlights our strategy. In the upper left-hand part of this page, we highlight the fact that we are the timber REIT's most leveraged to lumber. Quite simply, lumber price changes impact our P&L more than our peers. How is this so? In our Idaho timberlands business, we index our Idaho sawlog prices to the price of lumber, an arrangement, which is unique in the industry. Why do we like it? Well, we have a very favorable outlook for both new housing starts and for repair and remodel demand, which together account for about 80% of the demand for lumber in the U.S. The chart in the upper right-hand corner lays out a few of the reasons we are optimistic about housing over the coming years, pent-up demand, low mortgage rates, millennial age cohort, the age of the U.S. housing stock, all bode well for future lumber demand. Now that said, lumber prices can be volatile and, therefore, bring volatility into our Wood Products division's earnings. But thankfully, this volatility is offset by the stability found in our Timberlands division, which is the primary source of cash flow for our dividends, which has now grown 32% since 2012, as shown in the lower left-hand corner of this page. In addition to Wood Products and Timberlands divisions, we also have a real estate division that sells rural land at significant premiums to underlying timberland value. And also sells residential lots and commercial acreage in our master-planned community in Little Rock, Arkansas, called Chenal Valley. Now turning to Page 4. Environmental, social and governance, or ESG, is central to everything we do at PotlatchDeltic, and we have a great story to tell. For example, on the environmental side, we operate our timberlands on a sustainable basis, planting over 22 million seedlings a year after harvest. Our trees sequester 7.5 million tons of CO2 a year, helping offset global carbon emissions, helping mitigate global warming. We published our inaugural ESG report last year and we will be publishing our second ESG report over the next couple of weeks. Page 5 provides a quick overview of our asset base. In total, we have 1.8 million acres of timberland with roughly 1.2 million acres in the Southeastern U.S. and 600,000 acres in Idaho. With these 1.8 million acres of timberland, we harvest about 6 million tons a year of timber, about 1/3 in Idaho and about 2/3 in the Southeast. We operate 7 wood products manufacturing locations in the U.S., 6 of which produce lumber and 1 which produces plywood. Our mills can be found in St. Mary's Idaho; Bemidji, Minnesota; Gwinn, Michigan; Warren, Arkansas; Waldo, Arkansas; and Ola, Arkansas. We produce about 1.1 billion board feet of lumber at our 6 lumber mills and about 130 million square feet of plywood at our industrial-grade plywood mill. Finally, in our Real Estate division, we have 2 product lines: First, we have stratified all of our rural acreage and we have identified about 110,000 acres we intend to sell over the coming years at prices significantly above the underlying timber value. Second, as I mentioned earlier, we own a 4,800-acre master-planned community in Little Rock, Arkansas, called Chenal Valley, where we develop and sell residential and commercial lots. This year, we will sell about 145 residential lots in Chenal and about 15 to 20 acres of commercial land. Turning to Page 6. 2020 was a great year for PotlatchDeltic in spite of the COVID pandemic. We produced $382 million of EBITDDA for the year, a record for the company. In addition, each of our 3 business units had record EBITDDA for the year. We returned $123 million of cash to shareholders during the year; $108 million in the form of dividends and $15 million in the form of share repurchases. Importantly, our share repurchases were completed at an average of $31 per share significantly below the $60 where we are trading today. We pride ourselves on our capital allocation track record. Another highlight of the year was our 72,000-acre sale of nonstrategic timberland to the Conservation Fund, which is sold for $48 million. We have close ties to the conservation community, and this sale highlights our commitment to working closely with them to find favorable outcomes, and it also demonstrates our ESG commitment. Our balance sheet is in excellent shape, and we have the lowest leverage of all the timber REITs. Furthermore, when interest rates were at their lows early in 2020, we opportunistically refinanced $654 million of debt that will mature over the coming decade. This forward refinance will save approximately 120 basis points on interest expense over time. We ended the year with $631 million of liquidity and are well-positioned to continue growing shareholder value. 2021 is off to a great start with record profitability here in Q1. I'd now like to open it up to any questions.

All right. We have received 1 question online, and I'll read it here. How many projected acres of land do you hope to sell, acquire and harvest in the upcoming year?

Yes. Thanks, Jerry. Well, we manage our timberlands sustainably, and we harvest about 2% of our timberlands in Idaho each year. This translates to approximately 12,000 acres of the 627,000 acres that we own in the state. We are always looking to add to our ownership, but that is challenging to do in a meaningful way given we are the largest private landowner in Idaho and not many timberland parcels come to market. We also have a rural land sales program where we sell land that has a higher and better use to someone else. For example, our team in Idaho is creating small rural lots for sale that are about 10 to 20 acres in size and we expect to sell about 40 of these lots this year for about $5 million, at a price that is multiples of the underlying timber value. In total, we expect to sell about 1,000 rural acres in Idaho this year. Thank you.

That's it in terms of questions.

Thank you, Jerry. If -- since we have no more questions, I think, I will remind all the stockholders that you can go to the Investor Relations page for PotlatchDeltic at www.potlatchdeltic.com. And we will post the answers to the questions that were posed during the meeting on that website. A webcast playback of the Annual Meeting will be available for 24 hours after the completion of the meeting on the company's website. On behalf of the entire Board, our officers, and our employees, I'd like to thank you once again for joining us for our Annual Meeting of Stockholders. This concludes the meeting.